Falling interest rates in the first quarter of the year helped spark a rally in the bond market, especially in the government sector, the Investment Dealers Association of Canada said Thursday.

In its quarterly Review of Debt New Issues and Trading, the IDA said most areas of fixed income trading and new issuance showed steady growth in the first three months of 2004, with Government of Canada bonds trading at their most active levels in five years.

Government of Canada gross bond issuance totaled $15.7 billion in 19 new issues, 13% higher in value vs same quarter last year. Trading in federal bonds totaled $1.19 trillion, an increase of 15% on a year-over-year basis. Real return bond trading was $5.2 billion, down 13% in value from the very strong first quarter of last year.

Provincial bond issuance reached $12.5 billion in 80 new issues, an increase of 126% over a year ago and its highest level in a decade, the IDA said. Trading of provincial bonds totaled $104 billion, jumping 12% over Q1 2003, and setting a 10-year high.

Municipal gross bond issuance was 600 million in 42 new issues, up 5% in value compared to the same quarter last year.

Corporate debt issuance, at $12.6 billion, was up 6% from a year ago, but off 15% from the final quarter of 2003. Corporate trading, at $32 billion, was off 4% from a year ago and 6% from the previous quarter.

The IDA said the financial services industry had some of the largest debt financings, with the Royal Bank of Canada raising a total of $1.24 billion, followed by CIBC with $930
million, and Bank of Nova Scotia with $725 million.